One of the most misused words in the English dictionary is “Expensive”. It’s often thrown around in the wrong context, most notably, when referring to owning a franchise businesses. There’s really nothing extortionate, extravagant or lavish about something that provides the demands of your community, provides a venue for building relationships, whose structure is proven and tested to succeed, virtually pays for itself and potentially nets you more than the cost of acquisition. Similarly, people object to owning a franchise business by using “expensive” to mean they can’t afford it. On your own, and in a short span of time, maybe not. But that’s where you can leverage franchise funding experts like Al Lesko! Al is a Certified Franchise Broker and Certified Franchise Mentor whose expertise lie in franchise funding. He owns several successful businesses including Fund My Franchise, a franchise funding & consulting firm whose goal is to perfectly match the right fit business for their clients by considering clients’ personal goals, lifestyle requirements, financial expectations, and areas of interests. Besides client-business matchmaking, Al is an excellent business mentor/educator. But what people really value Al for is his expert abilities in creating funding strategies and finding the perfect funding terms and avenues for his clients! He sets the context to where “expensive” is not a viable objection because the right mindset coupled with the perfect strategy makes owning a franchise business definitely affordable and worth it, even for YOU! What’s the best funding option for me? What are the costs and how much do I stand to gain? How do I find the perfect fit business so I can start my entrepreneurial journey today? Tune in to our Podcast to learn more about everything you WANT and NEED on franchising, investment, financing processes and options. This is Eye On Franchising, where we share our vision for your franchise future. https://www.facebook.com/lance.graulich https://ionfranchising.com/
One of the most misused words in the English dictionary is “Expensive”.
It’s often thrown around in the wrong context, most notably, when referring to owning a franchise businesses.
There’s really nothing extortionate, extravagant or lavish about something that provides the demands of your community, provides a venue for building relationships, whose structure is proven and tested to succeed, virtually pays for itself and potentially nets you more than the cost of acquisition.
Similarly, people object to owning a franchise business by using “expensive” to mean they can’t afford it.
On your own, and in a short span of time, maybe not. But that’s where you can leverage franchise funding experts like Al Lesko!
Al is a Certified Franchise Broker and Certified Franchise Mentor whose expertise lie in franchise funding. He owns several successful businesses including Fund My Franchise, a franchise funding & consulting firm whose goal is to perfectly match the right fit business for their clients by considering clients’ personal goals, lifestyle requirements, financial expectations, and areas of interests.
Besides client-business matchmaking, Al is an excellent business mentor/educator.
But what people really value Al for is his expert abilities in creating funding strategies and finding the perfect funding terms and avenues for his clients!
He sets the context to where “expensive” is not a viable objection because the right mindset coupled with the perfect strategy makes owning a franchise business definitely affordable and worth it, even for YOU!
What’s the best funding option for me? What are the costs and how much do I stand to gain? How do I find the perfect fit business so I can start my entrepreneurial journey today?
Tune in to our Podcast to learn more about everything you WANT and NEED on franchising, investment, financing processes and options.
This is Eye On Franchising, where we share our vision for your franchise future.
https://www.facebook.com/lance.graulich
[00:00:00] LANCE: Welcome to Eye on franchising. Are you looking for business opportunities? Well, you are in the right place. We represent over 650 franchises and business opportunities. We will help you find your perfect franchise for free. We even have a free assessment on our website that will help us determine what the best businesses for you based on your investment level mindset, skillset and life experiences this is Eye on franchising, where we share our vision for your franchise future. I'm your host, Lance Graulich each week, we will speak to fascinating folks from the world of franchising, franchise owners and founders, franchise, funders, and franchisees are you looking to find your perfect franchise or perhaps you are an independent business owner looking to grow and scale your business by setting up a franchise, either way, our team can help you. Eye on franchising where you will [00:01:00] learn the A to Z of franchising
[00:01:06] Hello everyone. And welcome back to Eye on franchising. I am your host, Lance Graulich well, I have, uh, of course another special guest today. He's a friend, he's a franchise expert franchise consultant, but most important he's a franchise finance expert. And boy, we can tell you stories for days. I could tell you stories about our experiences thus far this year alone, uh, which I think will come up today, but without further, a deux My friend Al Lesco Al. Welcome.
[00:01:39] AL: Hey, thank you very much, Lance. Appreciate being here, helping out any way I can.
[00:01:43] LANCE: Absolutely. Well, I'm so happy you are here. And our listeners are excited to hear about how you get financing for a franchise. So, uh, let's start off with the obvious Al who is Al Lesco. And how did you get in the crazy world of [00:02:00] franchising in the first place and finance all together?
[00:02:02] AL: That's an interesting path. Actually, I really cut my teeth in the automotive industry. And, uh, for many, many years I was in that industry, ended up going to work for the, which is now the fifth largest chain of car dealerships publicly traded in the country, worked in operations, really got to enjoy working with people. What I didn't like was working in a corporate environment, which we run across a lot with our clients, as you know, and. You know, living out of a suitcase, the lifestyle wasn't there and it became more and more important to me to leave that lifestyle and to yet have a lot of the benefits and the security of owning a or being part of, uh, an organization like, you know, publicly traded. So I think we run into that a lot long story short, I started looking for a business myself. Uh, wasn't able to find what I was looking for in the area. I looked er lived in. Of course, I didn't have any idea what a franchise consultant was at that [00:03:00] time or that probably this path would have changed. Anyway.
[00:03:03] LANCE: Al Where were you living at that point?
[00:03:05] AL: I'm actually living in Medford, Oregon at that point and I still live outside of Medford long story short, I became a franchise consultant and then eventually a franchise funding specialist because it was perfect. It fit my lifestyle fit. What I was happy doing, which you know, is helping people. And also my background in being a problem solver.
[00:03:29] LANCE: Love it. Yeah. W we do a lot of problem solving.
[00:03:32] AL: Sure. We do.
[00:03:33] LANCE: So. So what fascinated you about franchising Specifically
[00:03:38] AL: you know, as an operations guy, you know, I like having a system that makes sense and going out and executing a plan. That's exactly what a franchise is. And I, at that point in my career, I was in my forties. I didn't really want to reinvent the wheel. I had plenty of experience doing that in corporate America, but I wanted a [00:04:00] plan that would allow me to go out and execute it and give me the lifestyle. I enjoy. So the business or that I chose had to fit my lifestyle. Otherwise I wouldn't enjoy doing it, which is what we talk about all the time.
[00:04:14] LANCE: Exactly. You know, I was talking to a, an entrepreneur recently. I was on her podcast and she was telling me she's super interested in a franchise now. And now that I've talked to her, but prior to that, she's like telling me how much money she spent over the years in her business. And it's an independent business. She started it it's very successful, but how much time and money do people put into businesses. And they don't realize that that is part of the huge value in franchising is that somebody is already, somebody spent all this time up at night trying to figure. How, how should this work? How can we invite other people to participate in this successful model and, uh, you know, and, and, and [00:05:00] partake in our success, so to speak. So, uh, modeling success. I always love to say, I don't know if that was Tony Robbins or whoever, but modeling success is absolutely crucial. And that is franchising. So tell me about.
[00:05:13] AL: I was just going to expand on that for a second, you know? Uh, tell a client the same thing, you know, when it comes to a franchise, I mean, could you replicate what they do on that supports, uh, side for the four to 8% you're paying in royalties? I mean, when you really value your time, you probably can't.
[00:05:33] LANCE: Yep. No. And that, and that's the kicker. I mean, I, as you have, I have heard from quite a few people over the years. Oh, franchising is expensive. So w what do you mean by that? Because the idea behind franchising is, you know, if you're doing a restaurant, someone has negotiated sort of a bulk deal where you shouldn't be able to get those certain, uh, you know, prices on your own, uh, [00:06:00] versus joining a large corporation. And the other piece. Is obviously the royalties and the franchise fee and the setup, but you just said it, you know, someone has figured this out. So you're paying a one-time franchise fee. Although there are some renewals, I don't know how, you know, renewal fees after 10 years or so. Uh, not necessarily the full rate, right? What are we seeing? What are we seeing in renewals? Sometimes just a partial little, little renewal fee.
[00:06:28] AL: That's exactly right.
[00:06:29] LANCE: And then in the royalties, the royalties is really just the opportunity for the brand to make some money, but they still support you for those royalties, right?
[00:06:38] AL: That's exactly right. A client can actually focus on running their business and not having to worry about the back end of it. They have a good bookkeeper, a CPA at the end of the year. Everything else is really handled by the franchise. As far as that support systems, CRMs and reporting and even keeping up with the competition and having a competitive [00:07:00] edge. I mean, it's amazing.
[00:07:01] LANCE: That's exactly right. I mean Wendy's, as an example, came out with breakfast, not too long ago, ypu know franchisees were not up at night. Coming up with recipes. Corporate corporate came up with their own. Plan coffee program. You know, they're doing a biscuit, they're doing this, that whatever, and it, and it's been quite successful. It's nice to have that, that revenue stream. I'm sure if you're a Wendy's franchisee. So in the, in the world of finance, let's talk about franchise finance. What do you do exactly, of course. I know. But now we have to share this with the world.
[00:07:34] AL: I think what I do more than anything else is educate clients about what opportunities are out there, get a feel for what they have, what they're trying to achieve and, you know, match them correctly with the right lending option. I think that's probably more so than anything else. The other thing I do educate people on is not just getting financed to cover the cost of, uh, uh, buying a business. What's your three-year plan. What's your [00:08:00] five-year plan and what's your exit strategy. So we want to be able to make sure they're funded properly for that. So it may make a difference on how much money they put into it initially or not. You know, we may say it might be better to take on more of a loan and hang on to more capital depending on what their strategy and plan is going for.
[00:08:21] LANCE: Well, Al let's, uh, let's do a little role play. You just asked, uh, a hypothetical, which was, well, what is your three-year plan? I'm going to play along with you and. Well, we'll Al I don't know what is, what, what should my three-year plan be? Well, let's talk about, let's talk about how you help them with that
[00:08:42] AL: we do it every time. So when I talk to clients, say, okay, you're buying this business and let's hypothetically say it's a service related business. I said, usually by the end of the second year, you're going to be in a position. If you run your business correctly to either. Maybe the terms are a little bit different. You might be [00:09:00] able to rework your loan or you may not like the business you're in. So when you're looking at a three-year strategy, you should say, oh, I'm going to plan my business to say, if I like this business, I want to be an oppurt or in a situation where I can grow, maybe buy out a competitor or maybe by an additional territory, or I want to show enough profit on the books that I can get my return out of this business. And. So we try to talk to them and say, what are you, what are your plans here? How long do you plan on holding onto this business? Is it a stepping stone? Is this, you know, your passion, we need to plan accordingly. So I can tell you exactly how much to put in toward that business, how much you want to finance and where you want to be in that three-year period.
[00:09:48] LANCE: Great. So let's talk about what's the average loan these days, not necessarily. Well, what's the average loan that you do, and what's the average, let's say S SBA loan.
[00:09:58] AL: Doing an awful lot of [00:10:00] express loans, you know, anywhere from 50 to 150,000. And then I'm doing a lot of loans that are in excess of 350,000. You're probably going to ask me where's that gap? That one 50 to three 50 and
[00:10:16] LANCE: I was glad you asked or acknowledged it
[00:10:20] AL: uh, let's put it this way. The banks are in the business to make money and the work involved by the bank. Once that loan exceeds 150 is as much for $150,000 loan as it is for a million dollar loan. So many banks as per their policies. will only accept loans that are 350 above fortunately. And this kind of goes to something you were probably going to follow up on. This is why I work with so many different banks. They all have sweet spots and, you know, finding a bank that likes a certain industry likes to a loan amount that they like to, uh, you know, to grant. And also the profile, the financial profile of the [00:11:00] individual is very, very important. So. I would tell P I always tell clients the easiest loans to get are 50 to one 50 and over a 350,000 for those reasons.
[00:11:10] LANCE: Yeah. So on a $50,000 loan, let's play some examples because I know listeners are thinking of this. They're thinking, okay. How do I get a $50,000 loan? What are typically the requirements that you're asking somebody for when they want a $50,000 loan?
[00:11:28] AL: Sure. Um, we go into a packaging thing, but we tell them to get the basics. Initially, the first thing we tell them is we want a complete credit report. We like to have them pull either Experian, TransUnion, or Equifax, if they don't want to do that, I actually have a soft pull credit link that will not affect your credit. So we're going to do. We're going to make sure that they have their credit cards paid down to 35% or less relative to the credit card limits each card. We're going to want them to prepare a resume. We're going to have them fill [00:12:00] out a personal financial statement. We're going to want to see how much money they have coming in. As far as income coming in, which is not necessarily a deal breaker in getting a loan but we want to see, they can count a total household income. In other words, if they have a spouse or significant other, that all can be counted and they don't have to be on the loan. And then finally, we're going to say, okay, let's put this together and say, you're going to need to put in 11.1% into the business to get a $50,000 loan. So that means $50,000 loan. The bank will grant. You got to show where you put 5,555. The banks additionally are asking for a $50,000 or 20% whatever's greater reserve amount, which could come into way of just showing statements for a cash bank statement uh, IRA, 401k stocks, bonds mutual funds, heck even golden silver. If you can show the work, that's just to give that [00:13:00] bank some, you know, some warm and fuzzy that say, if something goes wrong, these people can liquidate some funds and make sure they make their own payments.
[00:13:08] LANCE: Yeah. And even if something doesn't go wrong, you mentioned the business plan earlier as part of a business, any business plan? Uh, I know as a franchise consultant, like you do that. Every single person, that's looking at a franchise, the question comes up regardless of their business experience, what am I going to start making money?
[00:13:27] AL: Yeah cashflow.
[00:13:28] LANCE: So, so what is the cashflow normally? What is the ramp up period? I have a franchise brand that's in real estate and they bragged it's true that the average investment is only $42,000. And the average franchisee gets that $42,000 back within 120. So, if you are counting on that or in your business plan, worst case scenario, get it back in seven months or eight months. It's always good to plan. Very, very conservatively. I'm sure [00:14:00] you'd recommend because cash is king. And as you're saying, everybody needs working capital in their deals, no matter what, because nobody comes out of the gate making money.
[00:14:10] AL: Well, and the banks insist upon it. If you go, if you want this, all this money, it'll say, well, what's the use of funds for, and if you don't list that you're going to have working capital, they're going to assist to say, well, we're going to loan you 25,000 more because you don't have working capital listed in your use of funds, which is something we reveal we prep that when we do the preparation, before we put a loan in front of the bank, we're going to put in front of the right bank we're going to make sure that the packaging is correct and we're going to do, you know, in checking off all the boxes to make sure that the client is prepared and that's exactly what the bank wants to see that particular bank, because each bank is different.
[00:14:47] LANCE: No, I love it. That's a perfect example. So the 5,000 down 5,500 in this example to get, you know, 50,000, uh, and then having that reserve capital, which the bank obviously wants you to [00:15:00] have on hand in the event, you're going to need it. Hopefully you don't need it.
[00:15:03] AL: Well, you said something about the cashflow to the banks are going to look at the FDD, a franchise disclosure document, and they're going to see what the cashflow is. And we're going to put that in those projections and we do help clients with projections because a new client, especially I thought, I think we've talked about this before a franchise can only disclose so much based upon what's in their franchise disclosure document. But me as an operations guy and knowing what the bank is looking for, we help them with their projections. And we guide them by talking to franchisees, showing them good resources, where they can gather that information. And then we're going to look at it to make sure. This is what the bank would be looking for and yet be realistic in what it is.
[00:15:45] LANCE: Absolutely So walk us through, let's say the next step up $150,000 SBA express loan,
[00:15:51] AL: basically the same thing and an express loan of one 50. Basically all it really changes is this, there are some [00:16:00] additional fees because of the size of the loan, as far as bank fields fees at closing, but they have to put 11.1% in. So that equates to $16,667
[00:16:10] LANCE: love how you know it off the top of your head. And you've done this before
[00:16:14] AL: once or twice and you know, same thing, 50,000 in reserve. Um, they're going to look at the cashflow and we're going to make sure. And again, one, one thing, a lot of people don't know the bank when they're doing projections or when a bank looks at projections, they're looking to see if the client is going to take a salary. And if they're not going to take a salary, they're going to make sure that the, uh, the net profit at the bottom of the spreadsheet is going to be at least twice what they're doing in loan payments. So, I mean, so that's your debt service coverage. That's a bare minimum. If you don't have that in a plan. You're not going to get a bank loan.
[00:16:54] LANCE: Right. Like, like everything, it has to make sense. It's a similar process, I would imagine when you go through a [00:17:00] mortgage, people want to make sure in this scenario that it looks like you can take care of this.
[00:17:05] AL: Oh, absolutely. Absolutely.
[00:17:08] LANCE: So what are the, uh, sort of exceptions? So let's walk us through. Uh, these were just SBA examples. So walk us through the non SBA examples, because there are quite a few lenders that I have that are great SBA lenders. One of the many reasons that I like you a lot is, uh, besides your personality, of course, and your brains is the fact that you work with a lot of different banks and you have a lot of different options, uh, at your disposal. You have that, uh, that fancy tool belt that Batman has, you know, depending on what you need, right. Your utility belt
[00:17:42] AL: well, I think, you know, having the experience with what you do and what's important, our main goal is to take care of the client that becomes our priority. So having those connections, and one of the things that, you know, there's a lot of SBA lenders out there. There's what they call loan brokers, which I am not. Um, [00:18:00] but our unique niches and I call myself a fro. Uh, franchise funding strategist, because that's really what I do, but my relationships are direct relationships with the banks. And I know you want to talk about other alternatives, but, um, we do work with, uh, directly with the decision-makers at the banks and the banks that we work with, our banks that actually fund the loan. That's very important. Yeah, cause you mentioned mortgage earlier and I wanted to touch on that. It's not like that loan is just going in and there's somebody that's going to another bank and they're the other banks going to fund it back to the options. I mean, we also offer the IRA 401k rollover program, which can be used in conjunction with an SBA loan. And there's some huge benefits to that. If you work the strategy, right. It's not right for everyone. I would say it's right for most. Um, we also do personal and business funding as well from a private source. Uh, the terms are a little bit less, the interest rates are a little higher, [00:19:00] but they're a little easier to get much quicker. And, um, usually the size of the loans are a little bit smaller than what's available with an SBA. But again, we walked through all of those options with the client. We're going to look at the cashflow in the business that they're looking for. In other words, when is that business going to be able to cover its own debt another words. It doesn't necessarily mean the owner's salary, but we want to make sure that it can cover all of the expenses, monthly expenses, because that's what we need for the working capital part of it. Also, we're also going to look at the FDD and say, okay, in that item set. Minimum investment, maximum investment.
[00:19:38] What part of the country are they in? So in other words, what's their cost of living. All of those are going to go into that decision. And we're going to start talking about, maybe we should use an IRA 401k. To be the initial part or part of the investment and an SBA. And you hang onto your own cash. Cause you mentioned it earlier, Cash is king, if you need to go and get [00:20:00] more cash, you can go simply go to the bank. If you have an SBA loan, you can't do that because you've already received that loan and the bank is going to be suspicious. Why are you looking for another loan? Typically they won't lend until they see two years as a cashflow out of that business.
[00:20:16] LANCE: Yeah, no, that's all, it's all great stuff. Tell us, walk us through the story. I sent you a, a young lady recently to my knowledge. I think it's the first time I heard of anybody truly getting a, a zero down a franchise deal done. And you did it
[00:20:33] AL: well, you know, Rumpelstiltskin deal. Let's just put it through that way. Turning straw into gold. So no, she really had good credit she just didn't quite have the capital to qualify for an SBA loan. She didn't have the reserve. And then we started looking and said, gosh, great credit score, good credit history.Has income coming in. I go, this is a perfect candidate for a personal. [00:21:00] So we work. We're a private label partner of a couple of lenders that do private loans and business loans as well. So we looked at the profile, we ran it. We got an estimate about how much we think we sh uh, she would qualify for walked her through the scenario, said, Hey, this loan is going to be a little bit shorter. It's going to be in the five to seven year term. And you know, there's a cost of money. The closing costs are all going to be back, ended alone. You can pay it off at any time without any penalty and we were able to get the money she needed. Yeah.
[00:21:30] LANCE: And she was so happy. I was talking to the brand on a regular basis. Um, and they're like, we love her, you know, is the financing any closer? I said, well, let me check in with Al. And, uh, it was a process and. Boy. Oh boy, was she happy her husband was happy and her husband's like I mean, they both told me it's it's she was working at a school and like a lot of people that, that I think you and I [00:22:00] like to call corporate refugees. They have some sort of corporate job. That's essentially what it felt like to me. She, she had this job at a school where she just didn't like it the, the admin wasn't really doing, maybe what was best for kids and, and all that. And she was just happy to get into her own thing and control her own destiny. And, and her husband kept thanking me profusely. So, you know, we always say, uh, in the hashtag world hashtag changing lives and that's really what this one was all about, especially. So, uh, hats off to you and all your hard work. You know, in the world of franchising, seeing all the things that you've seen, knowing that there are people listening, there might be experienced entrepreneurs out there and, and first time entrepreneurs, but you know, what are your tips, seeing all the things that you've seen over the years? To prepare people for a franchise in general.
[00:22:56] AL: Oh, you know, in general, I like to say there's three reasons [00:23:00] that drive somebody to buy a business. Right. They're either, well, let's just put an empire builder. I would consider myself an empire builder. Um, they're possibly passionate about a particular industry that they really want to pursue. And then of course, you know, the other one is the lifestyle. I think everybody is all three of those at some degree. The key is, is identifying what's most important of those three to the individual, rank them one, two and three. That starts there because now, you know, I have a starting point, you know, for a guy like you, that can look at this and say, okay, these are the priorities that a client's looking for. And then in the same respect, I know what kind of financing is going to be most appropriate for them based upon what they have, uh, whether we're going to go bank, whether we're going to go private, or if we're going to do an IRA, 401k, rollover, what are they trying to achieve? Not just. But especially when we run into people like in their forties and say, they're thinking of retirement, even [00:24:00] though they've got 20, 25 years still to work and we want to position them, we want to talk about that and say, how would you like to set up? I'm sure you run across this. Uh, well, uh, I'm going to lose my benefits if I leave corporate America or I'm not going to have an IRA or 401k, or I can't contribute like I did when I'm working for someone. And we cover that. So you absolutely can there's options to do this. Let's talk about your plan. So my tip is always to prepare a client and say, I want you to go back and think about what you really want to acheive past just buying a particular brand and leaving corporate America. I want to know what you want to do.
[00:24:37] LANCE: You know, one of the things that always, I guess, surprises me a little bit is when I talk to people that have never investigated having their own business, let alone a franchise, they have not really talked to their. Tax person accountant, depending on who's specifically doing their taxes, because I remind them of a story when I was a first time entrepreneur, a long time ago. [00:25:00] I'll never forget. When I called my CPA, who was also my tax person. And I said, Anthony, I'm taking a lot of money out of the business. You told me to take money as I need. But what about the taxes? And he goes, Lance, you own a business. Now you have write-offs he says, you're not gonna even be paying. You're not gonna pay any federal taxes this year at all, because you, you have a restaurant, you have all these depreciable assets, like why didn't I do this a long time ago? Because you know, you don't need as much income as, as an entrepreneur, as a business owner, then you do. Maybe it's a W2 employee you're paying higher or you're in a higher tax bracket.
[00:25:37] AL: Oh that's absolutely true. And I mean, you, you think about, I mean, you have a home office, you gotta be able to write off some expenses, you've got a vehicle. It should be going underneath the business, your cell phone, which, you know, everybody, these days, everything you do in business is tied to your cell phone that should be run through the business. So when you really think of. And actually, when we talk to clients about this, if you're making a hundred thousand dollars, you're [00:26:00] actually making more, if you net $75,000 in the business that you invested and you're going to have actually more money in your pocket and pay less taxes.
[00:26:08] LANCE: Exactly. This is, this is exactly what I've experienced. And I have to remind people of this. You know, let's talk about mindset prior to going live here. You know, we, we talked about this briefly. I run into clients all of the time that. Are scared out of their mind. They've, they've gotten a paycheck. They've collected a paycheck as a, as a corporate person or, or a job they're doing whatever over the years. And you get really comfortable and doing your own thing is, is obviously different. Do you have any tips or tricks to, to help people with their mindset
[00:26:43] AL: yeah, I talked to him about that goes really to the cashflow of the business they're going to be looking at and I'll just give them my personal experience. I said, for me personally, it doesn't matter what the business is. As long as it's honest and ethical, it can allow me to [00:27:00] do what I want to do, which is my fun time is whitewater rafting, fly, fishing, whatever the case may be.
[00:27:07] LANCE: Look where you are Al Oregon
[00:27:09] AL: I can't make a living at that. But the business that I invest in has to allow me to do that and I'll enjoy it. Therefore, if I need a paycheck and I'm using the client as an example right away, I am going to highly recommend that they look at the service related industries because they don't carry cashflow. They have income coming in almost immediately they're always in demand, you can always sell them. There's always an audience to sell and the bank's love em so if cashflow is important and if they're really worried about that, say find something that's going to fit your lifestyle in a service related industry. It's the least amount of risk, quickest to cashflow and the easiest to get rid of if you don't like it.
[00:27:51] LANCE: Yeah. Such great advice. Now let's talk about the pre-approval process. So what you know, obviously I [00:28:00] send people as early on as possible to you for pre-approval. What is your, uh, any, any thoughts on that process? Talk a little bit about how that works. Is it a hard pull a soft pull when you look at credit and cause people want to know, well, how do I get pre approved? Because like a mortgage, you know, you don't go shopping for houses and dragging real estate people all over the world or your city, uh, looking at homes unless you're pre-approved franchising is sort of like that and should be like that, but I'm happy to talk to people because I'm not, you know, I'm virtual, nobody knows where I am. I'm not actually showing them the franchises standing next to them, but I, I always encourage people to get financing right away because I don't want them to be disappointed. I had a couple recently Al I didn't go through you with this. Uh, I mean, they already had somebody in mind and. They didn't get their financing tidied up. They never, they came to me looking at a restaurant. And then I [00:29:00] said, do I have permission to show you something that I think fits you better? Even though hubby has restaurant experience. And they said, well, sure, you're the expert, Lance, show us what you think fits us. and it happen to be a restoration brand that fit them perfectly. And. She had an accounting background and saw the numbers in the FDD and her eyes almost popped out of her head. I'm sure. And she's like, oh, this is the one for us. Well, the financing hadn't been nailed down yet. So it was, it was a big stress in the end. They finally figured it out. It got done. They, they were self-funding. But, uh, tell us a little bit about how you handle the pre-approval process and again, uh, advice for people on preapproval and how to go about financing
[00:29:42] AL: yeah, that's an interesting thing. We look at each case by case basis because we want to see what their liquidity is most importantly, because just going back to, uh, the, the one loan, let's say for $150,000. Franchise fees can be anywhere from 30,000 to [00:30:00] $50,000, maybe even more in some cases, uh, for the franchise fee. So it may not be in their best interest to pay that 50,000, because that could affect them getting a loan a pre-approval if you will. So we're going to look at that. And that's one of the reasons we asked for that personal financial statement, so we can see what they have and we can give them a strategy say okay. If you put 17,000 in, we want you to keep the rest of your cash over here, because it gives you a better profile to the bank as far as liquidity. And then I'll say anything you pay for out of pocket. Prior, prior to the loan closes. You can't use the funds from the SBA loan to reimburse yourself. So therefore, we're going to talk about a strategy of saying, well, let's look at that item seven and let's see where that gap is. And let's see what those things that aren't paid by invoice. We'll ask for a higher amount of that. So on the pre-approval thing, that's one of the things we talk about. We talk about their credit card. paying that stuff down. We talk about a review of going over it. Let me [00:31:00] look at it so I can see if there's anything in there. The other thing is a good resume. All I tell them is a lot of people haven't written a resume hell. I've only had three jobs in my whole life, you know, so having a resume that's prepared as all they're looking for is to see what your experience in managing people is or has been. Um, so we want to talk about that. We also tell them that how that process works. Pre-approval is kind of a weird term. We call it prescreening because we know what bank is looking for. What? And once we know that we have all that information packaged and I take it to a bank, that's really what my job is, is to find the right bank. Sometimes I got to go through three or four different banks to find the right bank without them running the credit. So that's the purpose of getting that pre-screen and also getting the pre-approval and also the oh, the credit poll do a soft poll. So now I can go to those lending officers, those VPs and say, here's the [00:32:00] profile of the client. They've got everything in place. Hey, uh, it's a slam dunk. This is perfect for your bank. I've got to go and lobby. And when I lobby, they're got to go and lobby and they might have to talk to the VP in the credit department and say, this is a loan we want to take on. What are the other thing that people don't realize is things change about. A lot of times you're going to have turnover personnel. They're also going to see how the loans are performing at the bank. The bank's never going to tell you that we've got some loans that aren't doing so well. Right. And if they are, maybe I don't want to put that loan in front of that bank because, or the bank might say, you know what, we're not going to take this on where they had in the past. So. Having that financial strategists and that person that's doing that for you as opposed to, well, I'll call it a pump and dump a loan broker, the pumps up, what they can do and just dumps it on a. Is very important. So that pre-approval net prescreening is all about preparation and putting your plan together and sticking to the plan. Once you get that [00:33:00] pre-screen letter back from the bank, many times a franchise last me for that letter before that. And I'll say, look, if I have all this stuff written down, I'll write that letter because I know that I could get it through the bank. I don't fund the loan but what happens is, is I can say, I feel competent about this. The bank's going to take a look at this and say yes, go ahead and proceed with your client.
[00:33:22] LANCE: Yeah, that's great. That's all great information. So I want to ask you about industry. There are so many people that ask me or say to me, uh, I hear the statement often, but Lance, I have no experience in that industry you know, fill in the blank. So if I show somebody a flooring franchise, well, Lance, I've never been a contract. If I show them a painting franchise, I've never been, I've never been in the painting business. Now. We all know well, you and I know that in the world of franchising, that's why [00:34:00] franchising can be and is so successful. Is that.
[00:34:03] You can take somebody that was smart is smart, successful, and in virtually anything, it doesn't matter what they did. I have a lady that's in the hospitality business. She can jump into the painting business very easily because she has customer service ability and some sort of good communication skills, et cetera. So what is your thought process on that? How much of. Please in, I would imagine for some brands, there are lenders that prefer somebody to have more direct related experience. And in other cases not
[00:34:36] AL: I would say with the exception of the restaurant industry, if the person has experienced managing people has a very good, strong resume. Uh, as far as success, it doesn't have to be a high paying job. They just have to have success of longevity and, and prove. It's not that much of a factor. Now they will put some emphasis on the strength of the franchise itself. As far [00:35:00] as, you know, franchises, they have more than 50 units are going to get more preference than one that has maybe two or three units open. But short of that, not really where it comes to. And this is very important. One of the things that we do, and again, I'm not trying to self promote here, but throughout the process, we're with that client, when they're working with the bank, I always tell the clients, anytime the bank asks you any questions, your simple answer is if you don't know, let me get with a franchise or let me get with my franchise consultant and let me get without, because we've all worked on this together. And I just want to compare our notes. One of the things that sometimes a, an underwriter will do is they'll challenge. About how much they know and how much they put in, which goes to a business plan that they just take, those tests have been, um, customized, and they don't understand it for their market area or your projections. So we do the coaching on that. So we'll coach a client before they're going into underwriting and say, okay, let's go over your projections. Where did this number come from? Where did that come from? Let me look [00:36:00] at your business plan. If it's necessary for loans over 150 and say, all right, I think I would make a couple of corrections here that's what we do. And I think that makes all the difference in the world. All the difference in the world
[00:36:11] LANCE: yeah, no, I mean, look, that's, that's fantastic information and you brought up something, everything, you know, you're dropping all kinds of good, good knowledge here on everybody. One of the things you just said, that is so important is exactly what I look at on a regular basis, depending on the candidate and what their experience is if they're not as experienced. Or they're super nervous or their mindset. Isn't perfect yet. It's their first time they're looking, but I know they're ready to make that move financially and otherwise. Um, I am going to recommend a stronger brand, uh, to your point that is going to support the heck out of them. That has amazing training and mentorship programs, as opposed to some brands you and I know that they might perform well, but gotta be a much [00:37:00] stronger candidate because you're not going to get as much support.
[00:37:03] AL: I think that's well said. I really do Lance, uh, because that is really what the banks are looking for. They're trying to mitigate risk. I think what people forget is they think the SBA is loaning the money. It isn't it's the bank that's loaning the money and the SBA is backing the loan
[00:37:18] LANCE: right. How much plays in, uh, you know, if, if a franchise brand is, is not performing as well as they should, and maybe they've had a franchisee, they took on in the system that didn't do well, I would imagine that gets flagged pretty quickly. Um, and you know, when you go into underwriting or something, you know, they're like, ah, pick another brand
[00:37:42] AL: yeah, it's interesting. I actually have a client of mine, a long time friend. And you mentioned a franchise consultant. I'm working with him. I mean, he's got the financials. He doesn't have the income coming in. So this is a good, perfect example here, but he's got a strong industry with a new franchise [00:38:00] that only has couple units. Now I've had a couple of banks say no, but then I've had another bank look at that and say, wow, look at the owners of this franchise. Look at their experience in this. And then look at the financials of this individual, even though they're not working, he's got enough money that he could support himself for four years. And this business shows cashflow in month five. So. There is one that will get through. So it's knowing those little tricks.
[00:38:28] LANCE: Exactly. Now that's a perfect story. I love that response because that's what it is. It's not that easy. You know, a lot of people go searching for a business. They can't sleep at midnight. They start a hunting and pecking on their keyboard and Googling all these different franchise brands. And the reality is, you know, franchise consultants like me and you, we work for free essentially because
[00:38:52] AL: we really do
[00:38:53] LANCE: yeah. And, and, and you don't pay anything, the commission that you pay or the, I should say the franchise [00:39:00] fee that you pay when you invest in a franchise is going to be the same, regardless, this isn't like real estate where you get to save your commission. If you avoid an agent franchising, is that like that? So some people are a really strange they're like, what do you mean? I get a free advocate yeah, you do, you do
[00:39:18] AL: well, you know, and no disrespect to, uh, franchises themselves. But you know, the reality is, is they're in the business of selling franchises. And in some cases, if somebody were to go on their own, they're going to be talking to a, a lower level person. Maybe just somebody that's new in sales that is handling. Incoming leads. Whereas you're talking to somebody with your experience, you know, that doesn't have a vested interest in any one particular brand. Your vested interest is helping the client get what they need and what they want and be happy about that because those in turn return, uh, become referrals for you in the future. So. It's crazy. In my opinion, if I had the opportunity to work with a franchise consultant before I bought my first franchise, [00:40:00] it would have been fantastic. I can't be a bigger advocate for it.
[00:40:03] LANCE: Me too. Yeah. I didn't, it didn't even really exist all those years ago that I knew. So I think . , this is, this has been fantastic. You've given a ton of great information, Al any final tips for today, anything we didn't cover, you'd like to share,
[00:40:19] AL: you know, I can't think of anything in particular other than, you know, what trust your franchise consultant, trust your funding source. And if there's one thing that I've run across in a year, that has been a little bit challenging is a lot of times you'll get a franchise rep that does push too hard. Oh, don't go with that guy. Go with my guy. That is the worst thing that a client can do. They need to trust a franchise consultant. They need to follow the plan as far as what the franchise strategists or franchise funding strategist has done, because it's outlined to work anything deviating from that could mess it all up. That's what I would leave it with.
[00:40:57] LANCE: Well, Al it's been an absolute pleasure having you. [00:41:00] I'm glad we got to spend some time together and uh, we'll see you next time. I'm sure there'll be a part two in the future.
[00:41:06] AL: Oh, that'd be great. I really appreciate the opportunity. Thanks Lance
[00:41:09] LANCE: thanks everyone for tuning in and thank you Al
[00:41:14] Thank you very much for listening today, please like follow and subscribe so you don't miss anything here at Eye on franchising visit our website. Eye on franchising.com E Y E O N. franchising.com and complete our free assessments so we can assist with. Finding your perfect franchise this is Lance Graulich until next time.